Main navigation

The good times are rolling in for the equity partners at Clifford Chance, Freshfields Bruckhaus Deringer, Allen & Overy and Herbert Smith Freehills. This week, the firms released financial results for the year ending 30 April 2018 with dazzling profit per equity partner (PEP) all round.

Clifford Chance's revenue has increased 5% to £1.623 billion, and profits have risen a huge 13% to £626 million, resulting in PEP jumping by an impressive 16% to £1.6 million. Managing partner Matthew Layton told RollOnFriday that he was "immensely proud of the firm's strong performance" adding that since the firm implemented a new strategy in 2015, it has achieved "profit growth in every region and practice in our global network". He highlighted that one of the most rapidly areas of growth was the Americas.

An equity partner struggles, yesterday

The champagne corks have also been flying at Freshfields, as turnover rose 5% to £1.403 billion, and profits were up 12% to £683 million. PEP at the firm also rose 12% to £1.734m. At Allen & Overy, the rises were relatively modest in comparison with its Magic Circle peers: revenue was up by 4% to £1.57bn and profits also increased 3% to £690m. PEP rose 4% to £1.64m. A&O had record results in the last financial year, as PEP rocketed by an astounding 26%, which may be a reason that this year's growth is more steady. Managing partner Andrew Ballheimer noted that it was "gratifying to see another strong increase in revenue after outstanding figures last year".

At Herbert Smith Freehills, revenue remained relatively flat, up just 0.7% to £926.8m, However profit leapt 8.2% to £277.2million, resulting in PEP jumping 12% to £852,000.

Using today's FX USD-GPB rates (and by way of example), profits per partner at Latham & Watkins for 2018 were GPB2.5 million and profits per partner at Kirkland & Ellis were GPB3.5 million. Way higher than at the MC. And several multiples of HSF PEP. K&E is a bit of an outlier given its unique structure, whereas Latham is broadly speaking comparable to an MC firm. It's just way more successful.

Look at it from the perspective of the partnership. Yes, they are greedy and do not really care about the associates. But you knew that already.

However, added to that is the issue that they only way that the MC firms can hang on to their best performers is to pay them more. There is already an (MC to US firm) exodus underway. Ultimately, the partners are more important for the partnership than the associates.

In the very unlikely event that any MC firm gets close to top NY firm levels of profitability (and I acknowledge that strictly speaking neither LW nor KE is a NY firm, but you catch my drift), then you may see serious MC associate pay rises. Until then - as a prominent (and perma-banned RoF poster is prone to saying) - suck it up.

Yep..MC/SC partner profits go up and the grunts at the bottom of the pyramid are told to be happy with their (just about) inflationary salary increases. What's the excuse this year? Brexit / Trump / Some other uncertainty?

The MC are really falling behind. I appreciate that K&E has a slightly different structure - non-share partners instead of senior associates - who then battle it out to reach equity, but they still have more equity partners than bigger firms, like Freshfields & CC, and are still vastly more profitable, all the while paying their associates much more. I think the MC have, for the most part, overexpanded into less profitable, non-core jurisdictions, leading to a large profitability gap.